uploads///A_Semiconductors_XLNX_data center and comm revenue Q

Xilinx’s Revenue Drivers in Communications and Data Center

By

Jul. 21 2017, Updated 6:45 a.m. ET

Communications and Data Center

Xilinx (XLNX) broke the 1% average annual growth rate trend by reporting 7% YoY (year-over-year) revenue growth in fiscal 4Q17, which ended in March 2017. The company earns revenues from seven end markets, and its Communications and Data Center segment is among its largest segments.

However, this situation changed in fiscal 4Q17 as its Industrial, Aerospace, and Defense segment overtook its Communications and Data Center segment to become the largest end market segment, accounting for 43% of the company’s revenues.

Article continues below advertisement

Xilinx’s revenues from Communications and Data Center

Xilinx’s revenues from the Communications and Data Center segment fell 3% sequentially to $249.7 million in fiscal 4Q17 due to seasonal weakness in the data center market and a slowdown of 4G deployment in China (FXI). Intel (INTC) reported a 9.4% sequential decline in data center revenues during the same quarter.

However, NVIDIA (NVDA) was unaffected by this seasonality, as it is currently at the inflection point where its GPUs (graphics processing units) are being adopted by more than 80% of cloud companies for their AI (artificial intelligence) workloads. Its data center revenues rose 38% sequentially during the same quarter.

Xilinx’s Communications and Data Center revenues are expected to grow 3% sequentially to $258 million in fiscal 1Q18 as data center demand improves. The company expects the segment’s revenues to grow in the range of 1%–4% in fiscal 2018.

Communications

Communications are a larger part of the segment’s revenues. A worldwide rollout of a wireless network takes several years to complete. The 4G rollout began in December 2009 and is still ongoing in countries like Pakistan, generating a continuous source of income for Xilinx.

The next big growth wave should come with Xilinx’s 5G deployment, which is expected to begin in 2020 and reach its peak in 2023. However, the communications supply chain is already making equipment for 5G.

Article continues below advertisement

Qualcomm (QCOM) and Intel have unveiled their first 5G modems. Xilinx has launched its All Programmable RF SoC (radio frequency system-on-chip), which reduces power and footprint requirements for 5G, cable, and wireless backhaul applications by 50%–75%. Xilinx would face strong competition in this space from Intel, which is expanding its network infrastructure business by leveraging its Altera FPGAs (field programmable gate arrays).

Data center

In the data center space, the adoption of FPGAs for server acceleration has been slow. These chips need to be programmed, and a small group of professionals has that capability. So, NVIDIA’s general-purpose GPUs (graphics processing units) became a preferred choice of data centers.

Xilinx is overcoming this problem by introducing software that simplifies programming. The results have been positive as Amazon (AMZN) Web Services and Baidu (BIDU) adopted Xilinx’s FPGAs for their FPGA-backed cloud services. This may not generate large sales volumes for Xilinx in the near term, but it would encourage more users to adopt FPGAs and drive sales in the long term.

Next, we’ll look at Xilinx’s Industrial, Aerospace, and Defense segment.

Advertisement

More From Market Realist